This note shows that the orthogonal shocks obtained by imposing a recursive structure on the contemporaneous impacts of the errors in a vector-error correction model (VECM) are related to the orthogonal permanent-transitory shocks in a Gonzalo and Ng (2001, Journal of Economic Dynamics and Control 25, 1527–1546) decomposition provided some of the variables in the system are weakly exogenous. Specifically, when there are as many weakly exogenous variables as common trends and the weakly exogenous variables are ordered first, the orthogonal shocks obtained directly from the VECM constitute a permanent-transitory decomposition, and the permanent shocks are identical to those in the Gonzalo and Ng decomposition.We are grateful to the co-editor Paolo Paruolo and an anonymous referee for useful comments, which have helped to improve the content and exposition of this note. Financial support from the Australian Research Council is gratefully acknowledged.

This note suggests a simple modification to the Kwiatkowski, Phillips, Schmidt, and Shin (1992, Journal of Econometrics, 54, 159–178) test (KPSS test) so that it is applicable to testing the null hypothesis of near integration against a unit root alternative. The modified KPSS test is shown not to suffer from the asymptotic size distortion problems of the original KPSS test that are described by Müller (2005, Journal of Econometrics 128, 195–213). The test also has good asymptotic and finite-sample properties relative to the point optimal tests of Müller (2005) and Elliott and Müller (2006, Journal of Econometrics 135, 285–310).

In a recent Econometric Theory problem, it was demonstrated that in a conditionally heteroskedastic time series regression with martingale difference errors the use of lagged values of regressors as instruments may not increase the efficiency of estimation relative to ordinary least squares. We provide an example of an analogous phenomenon in a model with serially correlated errors, where the optimal instrumental variables estimator is asymptotically as efficient as the instrumental variables estimator constructed as optimal when ignoring the presence of conditional heteroskedasticity.I thank a referee for providing useful comments that improved the presentation and the co-editor Paolo Paruolo for his patience.

In this note, determinants are explicitly calculated for the covariance matrices of differenced and double-differenced AR(1) variables.The author thanks Peter C.B. Phillips for introducing the author to Grenander and Szegö's book on Toeplitz matrices and giving useful comments. The author also thanks two anonymous referees for helpful comments on earlier drafts of the note.

We study the properties of the multi-period-ahead least-squares forecast for the stationary AR(1) model under a general error distribution. We find that the forecast is unbiased up to O(T−1), where T is the in-sample size, regardless of the error distribution and that the mean squared forecast error, up to O(T−3/2), is robust against nonnormality.The author is grateful to the co-editor Paolo Paruolo and two anonymous referees for helpful comments. The author is solely responsible for any remaining errors.

This note adds to the recent research project on treatment choice under ambiguity. I generalize the Manski (Journal of Econometrics, in press) analysis of minimax regret treatment choice by considering a more general setting and, more importantly, by solving for the treatment rule given finitely many (as opposed to two) treatments. The most interesting finding is that with three or more undominated treatments, the minimax regret treatment rule may assign the same treatment to all subjects; thus, the most salient feature of the two-treatment case does not generalize.I thank Chuck Manski, the co-editor, and especially an anonymous referee for helpful comments. Financial support through the Robert Eisner Memorial Fellowship, Department of Economics, Northwestern University, in addition to a Dissertation Year Fellowship, The Graduate School, Northwestern University, is gratefully acknowledged.

I derive the approximate bias and mean squared error of the least squares estimator of the autoregressive coefficient in a stationary first-order dynamic regression model, with or without an intercept, under a general error distribution. It is shown that the effects of nonnormality on the approximate moments of the least squares estimator come into play through the skewness and kurtosis coefficients of the nonnormal error distribution.The author is grateful to the co-editor Paolo Paruolo and two anonymous referees for helpful comments. The author is solely responsible for any remaining errors.

In what follows all processes referred to are weakly stationary. Let us call the real part of a complex ARMA(p,q) process a Re CARMA(p,q) process. Every real ARMA(p,q) process can trivially be written as a Re CARMA(p,q) process. Provided the moment properties of complex linear processes are appropriately specified, the following inverse result is available: every Re CARMA(p,q) process is spectrally equivalent to a real ARMA(2p,p + q) process or some simpler process. Thus the ARMA and Re CARMA classes are spectrally equivalent. The question of whether an ARMA or a Re CARMA parametrization is better in a given context then arises. If cyclicality is present, and especially if we wish to treat cycles, growth, and decay together, in a model whose parameters are easy to interpret, then a Re CARMA approach may be helpful.The author thanks Paolo Paruolo, A.M. Robert Taylor, and an anonymous referee for helpful suggestions.

We present an analytical closed-form expression for the asymptotic variance matrix in the misspecified multivariate regression model.I am grateful to Hamparsum Bozdogan of the University of Tennessee for bringing the idea of the sandwich variance matrix within the context of the misspecified multivariate regression model to my attention and to two referees for their constructive and useful comments.

We show that the order of integration of a vector autoregressive process is equal to the difference between the multiplicity of the unit root in the characteristic equation and the multiplicity of the unit root in the adjoint matrix polynomial. The equivalence with the standard I(1) and I(2) conditions (Johansen, 1996, Likelihood-Based Inference in Cointegrated Vector Auto-Regressive Models) is proved.I am very grateful to Søren Johansen for his precious insights and his continuous help throughout the development of the paper. I also thank Paolo Paruolo (the coeditor) and the referees for valuable feedback. This paper was written while the author was a Post Doc at the Department of Economics, University of Copenhagen, and the hospitality of this institution is gratefully acknowledged.

When in the class of “exact” present value (PV) relations the decision variables do not Granger cause the explanatory variables, and a vector autoregressive (VAR) process is used to derive the cross-equation restrictions, the system embodies explosive roots, which hardly can be reconciled with the typical features observed in most macroeconomic time series. This paper investigates the issue.I thank Paolo Paruolo and two anonymous referees for helpful comments and suggestions on earlier drafts of the paper. I am solely responsible for all remaining errors.

I am pleased to announce that Guido Kuersteiner and Robert Taylor have joined the Board of Co-Editors of Econometric Theory for five-year terms beginning on 1 January 2007.